Investment

Just as a physical moat protects a castle and keeps it thriving, an economic moat protects long-term returns, along with a company’s earnings. For example, Visa and MasterCard have a huge network of connected merchants. New competitors would have to invest a significant amount of time and money to build a similar network. In this case, the size and scope of the network is the moat. The size then makes merchants stay with Visa and MasterCard, as their scale gives them pricing power. Visa and MasterCard’s economic moat limits competition, making their earnings more consistent and predictable. Not only Visa and MasterCard, but all other moats produce returns and help protect earnings. As earnings grow over the long-term, so will the value of your investment.